During the quarter ended September 30, 2012, the Company recorded a loss
from operations of $1,446,000 on $19,324,000 revenue, as compared to a
$186,000 operating loss on $20,383,000 revenue for the same quarter in
the preceding year; and a net loss for the current quarter of
$2,729,000 as compared to a net loss of $150,000 for the quarter ended
September 30, 2011.

Current quarter revenues have decreased from the same quarter in the
preceding year primarily as a result of the wind-down of Cessna
Aircraft Company (Cessna) programs. During the third quarter 2012, the
Company renewed its long-term agreement with the Boeing Commercial
Airplane Group (Boeing CA) which is forecasted to provide in excess of
$83 million revenue over the next five years. Start-up and commencement
of production deliveries for BAE Systems (Operations) Limited (BAE) F35
program has also contributed to an overall $110 million increase in
order backlog during the current quarter.

Earnings before interest, taxes, depreciation and amortization (EBITDA)
was negative $1,205,000 for the quarter ended September 30, 2012
compared to a positive EBITDA of $1,455,000 for the quarter ended
September 30, 2011. The decline in EBITDA was primarily as a result of
reduced revenues and costs associated with customer contract
terminations. During the quarter-ended September 30, 2012, the Company
incurred $825,000 (September 30, 2011: $136,000) in costs associated
with customer contract terminations.

On September 27, 2012, the Company secured a three year $12,000,000
operating line of credit. Concurrently, the Company repaid its
$6,000,000 term loan. Also during the quarter the Company increased
its share capital by $2,798,000.

Cash flows from operating activities during the quarter ended September
30, 2012 provided $350,000 of cash as compared to utilizing $766,000 of
cash during the quarter ended September 30, 2011. The Company has a
working capital surplus of $10,130,000 as at September 30, 2012 which
has decreased from the December 31, 2011$14,663,000 surplus, as a
result of utilizing cash on hand to repay long-term debt. The
Company's accumulated deficit as at September 30, 2012 was $78,581,000
(December 31, 2011: $76,016,000).

About Avcorp

Avcorp designs and builds major airframe structures for some of the
world's leading aircraft companies, including BAE Systems, Boeing, and
Bombardier. With more than 50 years of experience, over 400 skilled
employees and 354,000 square feet of facilities in Delta BC and
Burlington ON, Avcorp offers integrated composite and metallic aircraft
structures to aircraft manufacturers, a distinct advantage in the
pursuit of contracts for new aircraft designs, which require
lower‐cost, light weight, strong, reliable structures. Our Burlington
location also offers composite repairs for commercial aircraft. Avcorp
is a Canadian public company traded on the Toronto Stock Exchange (TSX:
AVP).

(signed)

MARK VAN ROOIJPRESIDENT and CHIEF EXECUTIVE OFFICER

Forward-Looking Statements

This management discussion and analysis should be read in conjunction
with the Company's audited financial statements. Certain statements in
this report and other oral and written statements made by the Company
from time to time are forward-looking statements, including those that
discuss strategies, goals, outlook or other non-historical matters; or
projected revenues, income, returns or other financial measures. These
forward-looking statements are subject to risks and uncertainties that
may cause actual results to differ materially from those contained in
the statements, including the following: (a) the ability of the
Company to renegotiate its debt agreements under which it is in
default; (b) the extent to which the Company is able to achieve savings
from its restructuring plans; (c) uncertainty in estimating the amount
and timing of restructuring charges and related costs; (d) changes in
worldwide economic and political conditions that impact interest and
foreign exchange rates; (e) the occurrence of work stoppages and
strikes at key facilities of the Company or the Company's customers or
suppliers; (f) government funding and program approvals affecting
products being developed or sold under government programs; (g) cost
and delivery performance under various program and development
contracts; (h) the adequacy of cost estimates for various customer care
programs including servicing warranties; (i) the ability to control
costs and successful implementation of various cost reduction programs;
(j) the timing of certifications of new aircraft products; (k) the
occurrence of further downturns in customer markets to which the
Company products are sold or supplied or where the Company offers
financing; (l) changes in aircraft delivery schedules or cancellation
of orders; (m) the Company's ability to offset, through cost
reductions, raw material price increases and pricing pressure brought
by original equipment manufacturer customers; (n) the availability and
cost of insurance; (o) the Company's ability to maintain portfolio
credit quality; (p) the Company's access to debt financing at
competitive rates; and (q) uncertainty in estimating contingent
liabilities and establishing reserves tailored to address such
contingencies.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION(unaudited, prepared in accordance with IFRS, expressed in thousands of
Canadian dollars)

September 30, 2012

December 31, 2011

ASSETS

Current assets

Cash

$ 1,403

$ 3,778

Accounts receivable

8,312

12,160

Inventories

18,739

19,418

Prepayments and other assets

994

1,396

29,448

36,752

Non-current assets

Prepaid rent

146

146

Development costs

4,736

5,540

Property, plant and equipment

10,737

12,523

Total assets

45,067

54,961

LIABILITIES AND EQUITY

Current liabilities

Accounts payable and accrued liabilities

8,391

10,694

Current portion of long-term debt

470

1,505

Preferred shares

10,457

9,890

19,318

22,089

Non-current liabilities

Deferred gain

275

311

Lease inducement

592

666

Deferred program revenues

19,054

18,671

Long-term debt

4,409

12,027

Warranty provisions

85

85

43,733

53,849

Equity

Capital stock

76,217

73,251

Equity component of convertible loan

206

453

Contributed surplus

3,492

3,424

Deficit

(78,581)

(76,016)

1,334

1,112

Total liabilities and equity

45,067

54,961

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(unaudited, prepared in accordance with IFRS, expressed in thousands of
Canadian dollars, except number of shares and per share amounts)

Three months ended

Nine months ended

FOR THE PERIOD ENDED SEPTEMBER 30

2012

2011

2012

2011

Revenues

$ 19,324

$ 20,383

$ 69,522

$ 61,791

Cost of sales

16,936

17,686

58,151

54,526

Gross profit

2,388

2,697

11,371

7,265

Administrative and general expenses

3,715

2,729

11,190

8,237

Office equipment depreciation

119

160

360

495

Other (gains) and losses - net

-

(6)

(4)

(12)

Operating Income (loss)

(1,446)

(186)

(175)

(1,455)

Foreign exchange (gain) loss

300

(706)

221

(571)

Finance costs

586

670

1,772

1,861

Loss on repayment of debt

397

-

397

-

Income (loss) before income tax

(2,729)

(150)

(2,565)

(2,745)

Income tax expense

-

-

-

-

Income (loss) and total comprehensive income (loss) for the period

(2,729)

(150)

(2,565)

(2,745)

Earnings (loss) per share:

Basic earnings (loss) per common share

(0.01)

0.00

(0.01)

(0.01)

Diluted earnings (loss) per common share

(0.01)

0.00

(0.01)

(0.01)

Basic weighted average number of shares outstanding (000's)

205,851

198,750

204,134

196,599

Diluted weighted average number of shares outstanding (000's)

205,851

199,930

204,321

202,684

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, prepared in accordance with IFRS, expressed in thousands of
Canadian dollars)

Three months ended

Nine months ended

FOR THE PERIOD ENDED SEPTEMBER 30

2012

2011

2012

2011

Cash flows from operating activities

Profit (loss) before tax

$ (2,729)

$ (150)

$ (2,565)

$ (2,745)

Adjustment for items not affecting cash:

Accretion on convertible loan

23

21

67

63

Accrued interest and government royalties

330

466

1,007

1,232

Amortization and depreciation

724

844

2,280

2,530

Deferred tooling revenue amortization and reclassification to
revenue

(2,292)

(214)

(8,710)

(640)

Development cost amortization and reclassification to cost of sales

662

91

1,698

281

Fair value of warrants amortization

44

44

132

44

Loss on repayment of debt

397

-

397

-

Preferred share dividends accrued

189

189

567

567

Provision for loss-making contracts

(108)

(300)

(189)

(591)

Provision for obsolete inventory

(84)

(123)

(67)

(173)

Stock based compensation

25

25

69

115

Other items

(47)

61

(105)

(47)

(2,866)

954

(5,419)

636

Changes in non-cash working capital

Accounts receivable

2,869

(1,396)

5,173

(3,136)

Inventories

(272)

(1,065)

935

(3,056)

Prepayments and other assets

471

-

396

518

Accounts payable and accrued liabilities

148

818

(2,316)

451

Other Items

-

(77)

-

(47)

Net cash from operating activities

350

(766)

(1,231)

(4,634)

Cash flows from investing activities

Purchase of equipment

(53)

(364)

(354)

(691)

Payments relating to development costs and tooling

(280)

(99)

(894)

(961)

Net cash from investing activities

(333)

(463)

(1,248)

(1,652)

Cash flows from financing activities

(Decrease) increase in bank indebtedness

-

(8,054)

-

(7,515)

Payment of interest

(552)

(342)

(1,048)

(881)

Proceeds from issuance of common shares

973

-

973

-

Proceeds from customer funding of program introduction

1,680

3,837

7,769

9,317

Proceeds from current and long-term debt

-

6,000

-

6,000

Repayment of current and long-term debt

(7,097)

(212)

(7,590)

(635)

Net cash from financing activities

(4,996)

1,229

104

6,286

Net increase (decrease) in cash

(4,979)

-

(2,375)

-

Cash - Beginning of period

6,382

-

3,778

-

Cash - End of period

1,403

-

1,403

-

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(unaudited, prepared in accordance with IFRS, expressed in thousands of
Canadian dollars, except number of shares)

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